How International Gold Trading Works
International gold trading is the movement of physical gold from producing regions, through refineries, into the global bullion market — priced against the London benchmark, financed through banking instruments, and settled on assayed fine gold content. The trade has two layers: a wholesale financial market (London, New York, Shanghai) where gold trades as a financial asset, and a physical supply chain that moves real metal from mines to refineries to vaults, jewellers and investors.
The Participants
- Producers — mining companies and artisanal producers whose output enters the market as doré.
- Refineries — convert doré and recycled gold into investment-grade bars; the accredited ones anchor the market's quality standards.
- Bullion banks — trade, finance, clear and vault gold for institutions; they make the wholesale market.
- Brokers and facilitators — connect sellers with refineries and buyers, structure contracts, logistics and payment instruments.
- End buyers — central banks, institutions, jewellery manufacturers and investors.
The Physical Flow: Mine to Vault
- Production. Mines smelt recovered gold into doré bars of variable purity.
- Export. The metal is exported under permits from the origin country, with origin and chain-of-custody documentation — see Gold Export Procedures.
- Shipment. Secure air freight carries the metal to a refining hub — Dubai, Switzerland, India and others — commonly on CIF terms, with the seller paying insured delivery.
- Refining. The receiving refinery melts, assays and refines the lot to 995.0–999.9 fineness.
- Settlement. The seller is paid on assayed fine gold content at a benchmark-referenced price, less charges.
- Distribution. Refined bars flow into vaults, exchanges, jewellery manufacturing and investment products.
How Price Is Set
Virtually all physical contracts price off the LBMA Gold Price — the twice-daily London auction benchmark — or live spot. Local physical markets trade at premiums or discounts to the international price reflecting regional supply and demand. Doré settles below the benchmark by the refining charges and payable percentage; refined kilobars in Dubai may trade above or below it with regional demand.
How Deals Are Secured
Physical gold deals between unrelated parties are secured by documentary instruments rather than trust. The buyer's bank issues a documentary letter of credit payable against shipping and assay documents; the seller may provide a performance bond backing delivery. Compliance runs ahead of commerce: KYC, origin verification and sanctions screening are completed before instruments are issued — see KYC Procedures in Precious Metals.
Example: A Complete Transaction
A producer contracts to sell 50 kg of doré monthly, CIF Dubai, at 98.5% of the LBMA PM fixing on assay date. Due diligence is completed on all parties; the buyer's bank issues a sight DLC for each shipment; the producer's bank issues a 2% performance bond. Each month: export permits are obtained, the lot flies to Dubai under insured secure freight, the refinery melts and assays it, documents are presented under the credit, and the bank pays at sight. The relationship runs on documents, benchmarks and assays — every input verifiable by both sides.
What Separates Genuine Trade from Noise
The international gold market is heavily intermediated and documentation-driven precisely because the commodity attracts fraud. Genuine transactions feature verifiable counterparties, bank-issued instruments authenticated over SWIFT, recognised refineries, transparent origin documentation, and settlement against assay. Offers featuring deep discounts to the world price, “leased” instruments, or sellers unable to evidence metal are not how the real market works.
Key Takeaways
- Gold trading has two layers: a wholesale financial market and a physical supply chain from mines through refineries to end buyers.
- Physical metal moves as doré from producing regions to refining hubs — commonly on CIF terms with the seller paying insured delivery.
- Nearly all contracts price against the LBMA benchmark; doré settles on assayed fine content less refining charges.
- Deals between unrelated parties are secured by documentary letters of credit and performance bonds, not trust.
- Compliance — KYC, origin verification, sanctions screening — precedes every legitimate commercial step.
Frequently Asked Questions
Where is most gold traded?
The London OTC market is the largest wholesale trading venue, alongside futures in New York (COMEX) and exchanges in Shanghai. Physically, Dubai, Switzerland, India and China are the dominant refining and consumption hubs.
Can individuals trade gold internationally?
Buying refined bullion through dealers is straightforward. Trading unrefined doré internationally is a specialist, compliance-heavy business requiring licensed counterparties, export permits and secure logistics — not a retail activity.
Why does gold go to Dubai?
Dubai combines refining capacity, vaulting, logistics, regional demand and established customs procedures, making it one of the world's largest physical gold hubs and a recognised CIF settlement venue.
Who guarantees payment in a gold deal?
The buyer's bank, through a documentary letter of credit: an irrevocable undertaking to pay the seller against the documents specified in the credit.
How do brokers earn in gold transactions?
Through commissions or margins defined in the transaction documents — typically a share of the contract value or a per-kilogram fee, paid at settlement under the same documentary structure as the main payment.